Explanation of the Mortgage Closing Disclosure Document

Hi everybody! This is Mia Schultz, the mortgage therapist. And today we are talking about the closing disclosure, which is the final document that you're going to get to outline all your funds and how all the numbers played out from the loan estimate over to the closing disclosure. So let's take a look!

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When you look at your closing disclosure on page one, this is your summary of the whole transaction. Right up at the top right hand side, you're going to see your loan information which outlines the term, the purpose, the product and the type.

So for this situation we're using the same client that we did for the loan estimate. He's on a 30 year purchase, fixed rate, conventional loan. That gives us the outline - we know we're good here. That's the kind of product we wanted and we slide down to the loan terms.

Under loan terms you have your loan amount which is $408,500, which is your purchase price minus your down payment. Interest rate locked in at 3.5% and a monthly principal and interest payment of $1,834.35. Just like we had on the loan estimate, which means that the borrower did not change any of the things that we started with on the structure of his loan. 

Let's scroll down to protected payments. We have your principal and interest payment which, like we talked about, that's not going to change over the full term of the 30 year loan: $1,834.35.

He is paying private mortgage insurance; and again, that's for another video to talk about PMI. That fee that he has is going to be to 80 to 55. He's going to pay that until he owns 20% of his house. There's a couple different ways we can work around getting that off of his loan at a later date.

The estimated escrow includes the taxes and insurance and that's $785.16. So his total monthly payment is going to be $2,902.06. That is going to stay fixed until his taxes and insurance come out next year which could fluctuate that total monthly payment. 

Let's scroll down a little bit and look at the estimated taxes and insurance and assessments. This is where it states that you are either escrowing your taxes and insurance or you are not. In a purchase, you only have the option not to escrow, which means to pay your taxes and insurance outside of closing, if you are putting 20% or more down on your purchase.

If you have less than 20% down, you're always going to be required to ask for the taxes and insurance. It makes the lender feel a little warm and fuzzy inside that you're not going to default on insurance and taxes and when he has control of them. So that's kind of why you have to do that.

At the bottom of page one, this is your closing costs, which are listed at $18,583.03 - pretty darn close to our original loan estimate. And we're going to detail all that out on page two.

So his total cash to close for this transaction, after all is said and done, is for $17,457.64. Now that already takes into account the earnest money that he put in and all the closing costs and the rest of the down payment that's needed, so this is total cash to close. Let's move to page two.

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Now this is looking a little bit different from our loan estimate. I don't know why they changed it, but they did. And this outline is pretty much the same numbers that we had on the loan estimate, but let's go through them again. Our origination charges have points and fees for the rate plus our processing and underwriting fees which never change.

And he is at $5,412.52 for this section A. Section B is services the bureau did not shop for. So again, like we talked about, the appraisal credit report and flood are all items that we order. You'll see that the 685 for the appraisal fee for this particular home is under the before closing section. This means that the borrower prepaid that appraisal fee.

So we're not going to collect it again from him at closing. The credit report and flood fees are listed appropriately. And you can see originally on our loan estimate, we had $100 for a credit report as a ballpark. The actual fees for that came in at $76.25, flood certs: $9. 

Next section is services the borrower did shop for. So the title fees come in from what you, the sellers, the realtors, and the attorneys decide on the purchase contract on which title company that we're going to use for this closing.

So when we order our title fees for your purchase, they send us an invoice back and say this is how much each item that we need to process for closing is going to cost. We update all the numbers that we had from the loan estimate, and these are your actual fees. So the total loan costs section D. These again, these are the fees are $9,365.67. And out of that he's already paid 685. The balance is $8,680.67.

The next section - other costs in line E are your taxes and government fees; and line F is prepaid. Prepaids are your initial 12 month homeowners insurance. Now remember at our loan estimate time you hadn't found a house and you hadn't picked an insurance company.

This is something now that the borrower - or you -would go out, quote out a bunch of different insurance companies, find out which one is good for you, and then you tell me what's going to go in that box. So that's your annual premium: you pay the first 12 months upfront at closing. 

The G: initial escrow payment at closing. This is the bucket where we pad your escrow account, and we need to collect enough here so that we can pay those bills when they come due. Your insurance is going to come due next July 16, and we need enough in there.

We collect three months because you're not actually gonna make your first payment until September 1st. So we're going to be a few months shy by the time that bill is due. So we put a little cushion in there. Same with your property taxes. So the property tax bill for this particular home is going to be coming due within the next 2-3 months. So we have to collect 10 months of taxes there so that we have enough to pay that bill. 

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Under H: other, this is where the home warranty and there's an impact fee for this particular township that they charge $100. This is where again all the miscellaneous fees are going to drop in.

There's a lot of people involved when you buy a house and every one of them has a little charge that they're going to put on your loan statement. So this is the bucket where all of that falls in. So down below under I, this is the total for this section is $9,253.36. Line. J we'll take your whole total. And you'll see on the very bottom lender credits, that is a $35 credit because something that I had quoted came in $35 higher on a fee that shouldn't change.

So when that happens, the lender takes care of that so that we stay honest and within guidelines to what we originally had planned and estimated when we did the loan estimate.

The next page is calculating your cash to close. This shows you the loan estimate that we originally started with or the last loan estimate that you received, in case there were any changes, compared to the final disclosures.

So you can see the pluses and minuses on each side and where the items changed and what changed and why? Now here's the fun part: summary of transaction. This is where all comes together. When you look at K1: sale price of property, the purchase price was $430,000. Closing costs paid at closing is $17,899.03, and that's a total from the detailed pages above. 

So in order to buy this house for $430,000, you actually need $447,899.03. So we take the total of what all the costs, the pre-paid sand the fee's added to the purchase price, come up with a total of what we need to close on this house. 

The next section, L, shows all the credits. So we take that total big number you've already put down an earnest money deposit of $4,700. We're giving you a loan for $408,500, the seller increased his credit to $11,450, there is a title insurance premium adjustment which must be customary for this county to give back to the buyer of $2,358; and remember those 10 months of taxes that we were collecting on the second page? Well down here, this is an adjustment for taxes.

So the seller has to pay the buyer for any time that he's lived in the house for when that tax bill comes in. So he covers his share of that. So our buyer here got another $3,433 credit towards his closing costs. His total cash to close is $17,457.64. 

And that is how the closing disclosure works. So give me a call if you have any questions because it is very confusing and I'd be glad to walk you through it and detail it down a little bit more if you need some help.